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Quality Systems 101: CAPA Programs Drive Improvement & Prevent Costly Mistakes

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No business is perfect, especially when humans are part of the equation. But, how do you tackle fixing quality issues as they arise? The goal of this article is to shed some light on the value of a CAPA program and why many states are making them mandatory for cannabis businesses.

Let’s consider the following situations:

  • Analytical lab results for a production batch test above the limit for a banned pesticide or microbial contamination
  • You open a case of tincture bottles and some are broken
  • A customer returns a vape pen because it is leaking or ‘just doesn’t work’

Do you…

  • Document the issue?
  • Perform some sort of an investigation, asking questions of the people involved?
  • Ask for a retest? Then, if the test comes back positive, move on?

Let’s go through each one of these and understand why the suboptimal answer could be costing your business money:

You don’t document the issue

I hear excuses for skipping on documentation all the time.

  • “It’s not a big deal”
  • “It was a one off”
  • “The glasses probably broke in transit”
  • “They are cheap and easily replaceable”
  • “It’s not worth the time”
Tracking and documenting supplier shipments can help you identify supply chain issues.

In the situation of a couple of broken bottles in a shipment, what if it was the seventh time in the last two months? If you haven’t been documenting and tracking the issue, you have no way of knowing if it was a single occurrence. Remember when you were surprised that your filling team did not have enough bottles? Those broken bottles add up. Without documenting the incident, you will never know if it was truly a one-time mistake or the sign of a deeper issue. The reality is, it could be sloppy handling on the production line, issues with the shipper or even a sign of poor quality coming from the supplier.

Have you ever compared the number of fills vs the number of bottles ordered? How much money have you already lost due to those broken bottles adding up? Do you have the ability to answer this question?

You perform an investigation

Let’s say a customer returns a leaky vape pen. You perform an investigation by asking the production workers what they think went wrong. They say that it’s very difficult to get the seal for the cartridge into place. Their supervisor tells them to try harder, refunds the customer and moves on. But, why is it difficult to get the seal into place? Is it a design flaw? Should a special tool be used to assemble the cartridge properly? Without getting to the root cause of why the seals are leading to leaking cartridges, you are doomed to have repeat issues. Numerous studies have found that less than one in twenty dissatisfied customers will complain, and that approximately one in ten will simply leave for another brand or provider. How much is this unresolved issue truly costing your business?

Asking for a retest and if it passes, releasing the product and moving on.

labsphoto
In Colorado, 15% of the final tested cannabis flower products continue to fail.

Suppose a major producer of cereal received test results for its most popular cereal that were positive for levels of heavy metals that research has shown to be linked to cancer or developmental issues in children. Now, suppose the company stated that it was an isolated incident and a retest showed that the product met acceptable limits. Further investigation showed no paperwork, save for a couple of emails and a phone call between the lab and the producer. Would that give you peace of mind? This is known as “testing into compliance” and was the subject of a landmark lawsuit in 1993 that Barr Laboratories lost.

For many the answer would be a hard NO. But this happens every day. In Colorado, 12.5% of cannabis batches failed final product testing in 2018 and 2019. That’s one in eight batches! What happened to those products? Good question.

Enter: CAPA (Corrective Action and Preventive Action) programs! For people with a background in quality and GMPs (Good Manufacturing Practices), CAPA is a household name. And, it’s quickly becoming a requirement that cannabis regulatory bodies are looking at. Colorado was the first state to explicitly require CAPA programs for all license holders effective January of this year and has provided a free resource for them. But, for the large majority of people, including those in the cannabis industry, it’s just another acronym.

What does a CAPA program do?

The benefits are numerous but two major ones are:

An effective tool for investigating the true root cause

First of all, a CAPA program provides the framework for a tool for investigation – as Murphy’s Law posits – things go wrong all of the time. Whether you have a manual, labor-intensive process or a highly automated operation, the equipment is programmed, maintained and monitored by humans. The logical sequence of problem solving within a CAPA program allows you to thoroughly investigate and determine the root cause of the issue. With a complete understanding of root cause, you are then able to eliminate it and prevent future occurrences – not just in the one area investigated, but in all similar situations throughout the company.

System for continuous improvement

Gathering info from a customer complaint like batch or product IDs can be crucial in a CAPA system

Anyone who is in the market for a new car lately can appreciate the technological advances. In the 1980s, it was air bags and ABS brakes (those of you that drive in snowy climates and remember having to pump your brakes can appreciate technological advancements). Bluetooth technology for hands-free communication and radio control is another example of continuous improvement in cars.

This is one of the biggest predictors and differentiators between profitable and successful companies with satisfied clients and one that is barely scraping by. The cost of poor quality adds up!

Key inputs in a CAPA system 

If the output is an improved system and lower cost of quality, we need to make sure we’re considering the potential inputs. 

Information that feeds into your CAPA system:

Customer complaints

Every complaint must be recorded. Gather as much information as possible, but at a minimum: the product type/SKU, the customer name and date of purchase. If possible, the batch or product ID.

This is not necessarily to identify products for a recall, but to prevent…

Laboratory test results

This should not be restricted to final product testing, but include any in-process inspections. Say you have a product repeatedly failing final testing, what if it’s actually been consistently failing or very close to failing at the very first in-process inspection? It’s also important to work with your laboratory to understand their method validation process, including the accuracy, precision, robustness, etc.

Infrastructure & environmental controls/monitoring

Most people consider “environmental controls” to be things like temperature and humidity control. While that is true, it can also include pest and contamination control. Poorly designed infrastructure layouts are major contributors to product cross contamination as well.

Supplier information

Undetected supply chain issues (remember the broken bottles?) can add up fast! CAPAs for suppliers cannot just include supplier monitoring, but improvement in how you communicate your needs to your suppliers. It’s easy to overlook non-cannabis raw materials as sources of microbiological and chemical contamination. Conduct a risk assessment based on the type of contact with your product and the types of contamination possible and adjust your supplier qualification program accordingly.

Are you ready to recognize the benefits of a CAPA program?

One more major benefit of CAPA programs to mention before we go is … Preventive via predictive analytics.

In Colorado, 15% of the final tested cannabis flower products continue to fail, mostly due to mold and mildew. A quality system, with effective data capture that is funneled into a CAPA program can easily reduce this by 75%. For even a small business doing $2M per year in revenue, that equates to a revenue increase of nearly $200,000 with no additional expenses.

Whether you are operating in the State of Colorado or elsewhere, a CAPA and Recall program will provide immense value. In the best case, it will uncover systemic issues; worst case, it forces you to fix mild errors. What are you waiting for?

Sherbinskis’ Mario Guzman Announced as Day 1 Keynote at Cannabis Conference 2021

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July 1, 2021, marked four years since Nevada launched its first adult-use cannabis sales, and the market has certainly seen its fair share of rapid growth and regulatory changes during that time, not to mention the unprecedented COVID-19 pandemic.

From July 2017 to June 2018, the state saw $529,851,245 in taxable medical and adult-use cannabis sales, a figure that has steadily increased to $719,216,651 during the current fiscal year, which includes sales data from July 2020 to March 2021, according to the Nevada Department of Taxation.

Flexibility is the name of the game for cannabis operators looking to cash in on this rapidly growing market, according to Layke Martin, executive director of the Nevada Dispensary Association (NDA).

“I think this industry is ever-changing, and our owners know that and are prepared for that,” Martin told Cannabis Business Times and Cannabis Dispensary. “They’re flexible and ready to pivot.”

RELATED: A Snapshot of Nevada’s Cannabis Retail Market: Q&A with the Nevada Dispensary Association

The NDA launched roughly five years ago as an advocacy and trade association for the retail segment of the market but has recently expanded to include cannabis cultivators and distributors.

Nevada currently has 86 operational dispensaries, and the industry employs approximately 10,000 people, Martin said.

Reflecting on Lessons Learned

The Source pivoted to the adult-use market quickly, launching its first recreational sales at its Sahara location on July 1, 2017. The company’s Henderson store began serving the adult-use marketplace much later, in October 2017, due to delays in the rollout of local regulations, according to Brandon Wiegand, The Source’s chief commercial officer.

“We saw an immediate impact,” Wiegand said. “Going from medical to recreational, it was about a five-times increase in business. Then, it’s ebbed and flowed.”

When the first adult-use sales launched in 2017, The Source had roughly 50 employees, a number that has since grown to more than 260. The company also won three new retail licenses when the state opened up another licensing round in 2018, and has opened three new stores in Las Vegas, North Las Vegas and Reno.

In the past four years, The Source has adjusted its operations to accommodate the sharp increase in customers, and part of these adjustments include more robust consumer education.

“With recreational, there’s a much bigger knowledge gap,” Wiegand said. “Customers are coming in that either haven’t consumed cannabis in many, many years or may have never consumed cannabis, and so we focus on education, knowledge, [and] creating an environment that helps awareness and understanding of the product, the different methods of consumption [and] the effects of that consumption. … Our big focus as a team is, how do we dispel the myths and stereotypes around the product, and how do we help people find the experience they’re looking for?”

Wiegand said The Source has a “pretty liberal sample policy,” where dispensary employees are encouraged to try the products to help inform their discussions with customers.

“We encourage them to try and experience the product themselves so that they can talk about it from a first-person point of view,” he said.

The COVID-19 pandemic sparked a new set of challenges for the business, Wiegand said, and The Source had to quickly navigate the e-commerce space to offer curbside pickup and delivery services.

“E-commerce has probably been one of the most significant changes in the business over the last four years—getting our product online [and] developing a platform and experience and a way for our customers to shop,” he said. “That’s an area that we’ve continued to focus on and retool. I think we’re still working today on how to make that process cleaner, leaner [and] more efficient. We’ve seen a huge shift in customers going after e-commerce. Coming out of COVID, there are a lot of people who have changed the way they shop. They’re looking for convenience.”

Clearing Regulatory Hurdles

There are some onerous regulations that burden all cannabis operators, such as limited access to banking services and tax code 280E, and then there are state-specific regulatory hurdles that businesses face in each legal market. In Nevada, the most significant regulatory hurdle when adult-use sales launched in 2017 might have been language in the law that required businesses to have distribution licenses in order to deliver product.

“That had not been figured out when we launched recreational sales, and our biggest challenge going into rec sales was storing product,” Wiegand said. “We didn’t know when we were going to be able to get deliveries for recreational product. The state and the regulatory agency—at the time it was the Department of Taxation—had allowed us to one time turn our inventory. So, whatever we had July 1 at 12:01 a.m., we were allowed to use that as recreational inventory. So, all of us, all of the dispensaries in the state, stockpiled, not knowing when we were going to be able to get deliveries.”

Another significant regulatory change was creation of the Cannabis Compliance Board (CCB) to oversee the industry, which had previously been regulated by the Nevada Department of Taxation.

The CCB, modeled after the state’s Gaming Control Board, launched in July 2020, and Martin said she and many of the NDA’s members are happy with how the board has operated over the past year.

“They’ve been great to work with, and it’s excellent having a dedicated regulatory body for the industry,” she said. “It makes it easier to comply. … They’re transparent. … When they were working on regulations, for instance, they [sought] industry guidance so stakeholders were able to provide guidance on what the regulations should look like.”

The CCB recently created a Cannabis Advisory Commission, Martin added, which is made up of industry stakeholders, legislators and government agencies who will ultimately make recommendations to the full board.

“There’s a subcommittee on social equity, one on public health, one on public safety, and one on the cannabis industry and market stability,” Martin said. “Each of those subcommittees will research, analyze and make recommendations to the board. … They just met for the first time this week, so we’re really excited to see where that goes.”

Planning for the Future

During the 2021 legislative session, the Nevada Legislature passed a bill to create a new consumption lounge license, the first new license type since adult-use was legalized. The CCB is currently going through the rulemaking process to draft regulations for these new businesses, and Martin anticipates seeing the first operational lounges in the early part of 2022.

Existing dispensaries can each apply for a license to open one lounge, which must be attached or adjacent to their existing facilities.

“Some of our [dispensary members] … are located near the tourist corridor, [and they] are very excited about the opportunity to have lounges to give tourists, for example, a place to try cannabis products legally,” Martin said.

The Source will pursue a license to create a consumption lounge, Wiegand said, adding, “There’s a whole world of experiences that can be created with the product, and I’m really excited to see what comes out of that and very proud of the fact that Nevada took a stand and will be part of something that will be the next evolution of the industry.”

The NDA will continue to evolve with the industry, Martin said, and the organization is already planning its priorities for the next legislative session, which will take place in 2023.

One of these priorities will likely be reforming state regulations on packaging and labeling, Martin said.

“A lot of our regulations and statutes related to packaging and labeling have evolved, and it’s become … somewhat duplicative, a little bit onerous, and we are taking cues from a couple of other states that have gone back and reformed their packaging and labeling regulations,” she said. “How can we streamline … our packaging and labeling requirements to be more consumer-friendly [and] provide the information, but perhaps in a different way?”

The Source’s upcoming goals focus on running a more efficient dispensary, Wiegand said.

“One area we’ve focused on pretty heavily over the past few years is understanding the customer—understanding buying behavior, understanding product and proper merchandise planning and allocation,” he said. “How do we get the right products in the right volumes at the right times, so we’re not overstocked in some SKUs and understocked in others? How do we make sure that the product our customer is looking for is kept in stock?”

Customer preferences are starting to evolve, he added, and consumers are starting to purchase products based on terpenes rather than potency.

“We spent a lot of time and a lot of effort educating customers about the entourage effect and terpenes and really understanding that there’s a lot more to the experience of the product beyond just the THC percentage,” Wiegand said. “In conversations with customers, there’s definitely a different level of knowledge and customers are seeking out terpenes they know and like and that bring them the benefits and the effects that they’re looking for.”

The Source has continued to scale to meet consumer demand and has converted to vertical cultivation to double its square footage without expanding the size of the building. 

“Then, on top of that, we’ve bought a new distribution center, where we’re going to co-locate our production facility,” Wiegand said, adding that this will support The Source’s dispensaries as well as other retailers that buy The Source’s product wholesale.

“We scale up the business, we plateau and stabilize, and then we develop new products, … we see the demand go up, and we have to retool the business again,” Wiegand said. “I joke about the fact that it has been a sprint from day one, even going back to medical. I don’t know that we’ve had a year of stability. It’s always been something changing, something new, and that’s part of what I love about the business—it’s dynamic and exciting.”

New Lawsuit Takes Aim at Utah’s Cannabis Cultivation Licensing Process

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Market demand across the cannabis industry has generally followed a straightforward path: After legalization, consumers look for flower, then edibles and vape products, followed by more focused interest in concentrates. It’s that last and most varied segment that’s seeing tremendous growth recently.

Within the concentrates category, solventless concentrates are growing rapidly.

“What we’re seeing with solventless is that as markets mature, their consumer bases are starting to look for higher quality products and different product experiences,” PurePressure Director of Marketing Eric Vlosky says. “A lot of people end up landing on solventless as they get more educated about what goes into their cannabis. You’re seeing it happen very quickly in mature markets, and then other markets are following suit.”

Live rosin batter produced at Kush Masters in Boulder, CO.

Last year in California, rosin concentrates accounted for $24.8 million in sales, according to BDS Analytics. That was up from $12.5 million in 2019. And sales are not slowing down.

Based on January-to-January growth, from 2020 to 2021, BDS Analytics predicts that 2021 solventless sales could hit $62.5 million in California. 

In Oregon, another more mature market, it’s the same story. Solventless sales raced skyward from $7.4 million in 2019 to $17.8 million in 2020 to an anticipated $30.6 million in 2021.

To some degree, the story of cannabis in the U.S. is still one of mature markets signaling consumer trends that will follow in other parts of the country. As California and Colorado go, so goes the rest of the U.S., often enough. That’s the case when it comes to genetics, new products (THC-infused beverages, let’s say) and broader market categories like solventless concentrates. The momentum is here.

What solventless offers is the clearest expression of the plant’s original chemistry in concentrated form, due to that fact there is no intermediary chemical vehicle through which the extraction is happening. As a market description on dispensary shelves, it’s an expanding niche within the broader game of cannabis consumer demand, and budtender education is helping the trend along. It’s getting less common to walk into a dispensary and not get into a conversation about the ins and outs of solventless.

As such, these products may be more expensive, but the end result is a flavor profile and ensemble effect that caters to sophisticated tastes, such as you will find in maturing markets. 

This is the area of the cannabis space where you’ll find first adopters, influencers, connoisseurs. 

 

Solventless hash oil dripping into a jar off of the Longs Peak rosin press.

For operators who might be interested in catching this wave and starting to embark on a solventless plan, it starts with the brand. What do you want to do with solventless? What would you like to see on dispensary shelves six or eight months down the line? 

And do your answers to those questions fit into the overall story that your brand has been carefully crafting?

“Before you buy anything or even identify where in your lab you’re going to create space, you want to have an idea of what SKUs and what products mesh well with your brand and your market,” Vlosky says. “Once you have an idea of what products you think the market will want from your brand and what fits, then it’s planning in your lab how much square footage you have and how much processing you think that your lab can undertake in a week, a month, a year, and having a multi-phase roll-out.”

This is an important point. In most areas of the cannabis space, you’re not simply diving into the deep end on day one (although it might feel like you are). Scale is a vital concept in this industry, and that’s no different when you’re considering solventless extraction. As part of your brand, it will take time and observation to learn what works best. The on-ramp in those early days of your solventless experiment will be only a scaled-down preview of what your phase-two and phase-three plans might look like.

Early on, make sure that you have the right team in place

“Have someone on the team—whether it’s the owner or the lab manager or one of the extraction techs—who’s actually passionate about solventless, which is pretty common, actually, because a lot of core industry people are really passionate about solventless,” Vlosky says. “That really helps, because then they’re going to help make good decisions to make sure that you’re emphasizing quality and making the right moves to make a high-quality product.”

Then there are some of the more immediate issues to tie up. Identify the space you’ll use for this work and for the freezers you’ll need to store fresh-frozen plant material. Source premium genetics specifically for this solventless use. Use RO water and RO ice (not tap) for your hash washes. “Having that clean RO water makes a huge difference in the end result in quality,” Vlosky says. 

If all goes well, how will you expand operations in your lab? Who will you need to hire? How will you pivot to meet evolving consumer preferences among the SKUs you’re offering? 

Part of those questions involves the material pipeline that you’ve set up for the first phase of your foray into solventless. 

If your business is vertically integrated, then you’ve got a known source for plant genetics that could work well in a solventless extraction environment (resinous trichomes, rich terpene profiles). You can tailor your cultivation vertical toward this new solventless venture.

If you’re not vertically integrated, what sort of input source have you lined up? Early on in conversations with growers, make sure to clearly explain that you’re interested in material for solventless extraction. This helps the transaction and ensures that the grower identifies plant genetics most suitable to your end goal.

The key is to keep that material pipeline consistent as you grow your solventless operation, and to cross-check it against your longer-term goals.  

5 Pivotal Trends Propelling Growth For the Medical Cannabis Market: 2021-2027

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Growing awareness and public support for medical cannabis around the world has pushed regulatory authorities to consider the legalization of medical cannabis, which remains the major factor driving growth for the medical market. Cannabis-based medication has conventionally been used and studied to be an effective therapeutic solution for various disorders. Increasing R&D activities for the development of novel solutions and applications has led to various formulations being approved by The United States Food & Drug Administration (FDA). For instance, in 2020, the FDA had approved application of Epidiolex for treating seizures related to tuberous sclerosis complex in patients aged one year and above. On account of shifting interest towards the benefits of medical cannabis and significant technological advancements, application of medical cannabis is increasing rapidly, which is positively impacting the overall business space.

According to Global Market Insights, Inc., the medical cannabis market size was valued at USD 22.4 billion in 2020 and will record exceptional growth numbers in the coming years, considering the emergence of the following trends:

Development of new products by key market players

Prominent players operating in the medical cannabis industry such as Canopy Growth Corporation, Aurora Cannabis Inc., Aphria Inc., GW Pharmaceuticals, ABcann Medicinals Inc., The Supreme Cannabis Company, etc. are focusing on strategies pertaining to product development and acquisitions in order to gain a strong market presence. Citing an instance in 2018, GW pharmaceuticals, announced that it had received an FDA clearance for its first plant-based pharmaceutical cannabidiol for treating rare pediatric epilepsies. Apparently, the approval helped the company expand its portfolio while giving it the innovator’s advantage in cannabis-based treatments.FDAlogo

Rising demand for treating nausea conditions

Medical cannabis is finding extensive usage in the treatment of nausea conditions especially for the patients undergoing chemotherapy, as a part of cancer treatment. Numerous tetrahydrocannabinol- and cannabidiol-based medications have been approved for treating the symptoms of nausea. The rising incidences of cancer and nausea segments across medical cannabis markets is anticipated to register a substantial CAGR of 18.4% through 2027.

Increasing preference for topical route of administration

Topical administration of medical cannabis is gaining prominence as topical solutions such as lotions and creams can be directly applied to the skin for the treatment of an injury. They are also replacing opioids for injury-related pain management as these have shown several side effects. Topical products also allow for self-administration that’s minimally invasive, while exhibiting limited side effects. With increasing adoption of topical route of administration, the segment is estimated to register an appreciable valuation of $5 billion by 2027.

Higher sales through dispensaries

Dispensaries have become a prime distribution channel globally. Considering the stringent regulatory scenario around medical cannabis, its consumption and sales are highly monitored by authorities in order to avoid any abuse or instances that lead to addiction. It is relatively easy for both suppliers and consumers to engage in a conventional brick and mortar store model under a regional medical cannabis program. Given that, dispensaries are anticipated to retain dominance in the market over the coming years. In 2020, the segment had held a sizeable market share of 58.4%.

Rising consumption of medical cannabis in Latin America

South American countries like Argentina and Chile are the major consumers of medical cannabis in the region. While Argentina has legalized the domestic cultivation of cannabis, Chile is known to have a history of medical cannabis with various clinical trials being performed since 2014. The country is one of the leaders in the LATAM medical cannabis industry wherein the regulatory authorities keep on simplifying the laws time and again. With favorable regulatory scenarios, the regional market is projected to expand significantly by recording a CAGR of 20.9% through 2027.

Legislation to Expedite Cannabis Cultivation Introduced in New York

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July 1, 2021, marked four years since Nevada launched its first adult-use cannabis sales, and the market has certainly seen its fair share of rapid growth and regulatory changes during that time, not to mention the unprecedented COVID-19 pandemic.

From July 2017 to June 2018, the state saw $529,851,245 in taxable medical and adult-use cannabis sales, a figure that has steadily increased to $719,216,651 during the current fiscal year, which includes sales data from July 2020 to March 2021, according to the Nevada Department of Taxation.

Flexibility is the name of the game for cannabis operators looking to cash in on this rapidly growing market, according to Layke Martin, executive director of the Nevada Dispensary Association (NDA).

“I think this industry is ever-changing, and our owners know that and are prepared for that,” Martin told Cannabis Business Times and Cannabis Dispensary. “They’re flexible and ready to pivot.”

RELATED: A Snapshot of Nevada’s Cannabis Retail Market: Q&A with the Nevada Dispensary Association

The NDA launched roughly five years ago as an advocacy and trade association for the retail segment of the market but has recently expanded to include cannabis cultivators and distributors.

Nevada currently has 86 operational dispensaries, and the industry employs approximately 10,000 people, Martin said.

Reflecting on Lessons Learned

The Source pivoted to the adult-use market quickly, launching its first recreational sales at its Sahara location on July 1, 2017. The company’s Henderson store began serving the adult-use marketplace much later, in October 2017, due to delays in the rollout of local regulations, according to Brandon Wiegand, The Source’s chief commercial officer.

“We saw an immediate impact,” Wiegand said. “Going from medical to recreational, it was about a five-times increase in business. Then, it’s ebbed and flowed.”

When the first adult-use sales launched in 2017, The Source had roughly 50 employees, a number that has since grown to more than 260. The company also won three new retail licenses when the state opened up another licensing round in 2018, and has opened three new stores in Las Vegas, North Las Vegas and Reno.

In the past four years, The Source has adjusted its operations to accommodate the sharp increase in customers, and part of these adjustments include more robust consumer education.

“With recreational, there’s a much bigger knowledge gap,” Wiegand said. “Customers are coming in that either haven’t consumed cannabis in many, many years or may have never consumed cannabis, and so we focus on education, knowledge, [and] creating an environment that helps awareness and understanding of the product, the different methods of consumption [and] the effects of that consumption. … Our big focus as a team is, how do we dispel the myths and stereotypes around the product, and how do we help people find the experience they’re looking for?”

Wiegand said The Source has a “pretty liberal sample policy,” where dispensary employees are encouraged to try the products to help inform their discussions with customers.

“We encourage them to try and experience the product themselves so that they can talk about it from a first-person point of view,” he said.

The COVID-19 pandemic sparked a new set of challenges for the business, Wiegand said, and The Source had to quickly navigate the e-commerce space to offer curbside pickup and delivery services.

“E-commerce has probably been one of the most significant changes in the business over the last four years—getting our product online [and] developing a platform and experience and a way for our customers to shop,” he said. “That’s an area that we’ve continued to focus on and retool. I think we’re still working today on how to make that process cleaner, leaner [and] more efficient. We’ve seen a huge shift in customers going after e-commerce. Coming out of COVID, there are a lot of people who have changed the way they shop. They’re looking for convenience.”

Clearing Regulatory Hurdles

There are some onerous regulations that burden all cannabis operators, such as limited access to banking services and tax code 280E, and then there are state-specific regulatory hurdles that businesses face in each legal market. In Nevada, the most significant regulatory hurdle when adult-use sales launched in 2017 might have been language in the law that required businesses to have distribution licenses in order to deliver product.

“That had not been figured out when we launched recreational sales, and our biggest challenge going into rec sales was storing product,” Wiegand said. “We didn’t know when we were going to be able to get deliveries for recreational product. The state and the regulatory agency—at the time it was the Department of Taxation—had allowed us to one time turn our inventory. So, whatever we had July 1 at 12:01 a.m., we were allowed to use that as recreational inventory. So, all of us, all of the dispensaries in the state, stockpiled, not knowing when we were going to be able to get deliveries.”

Another significant regulatory change was creation of the Cannabis Compliance Board (CCB) to oversee the industry, which had previously been regulated by the Nevada Department of Taxation.

The CCB, modeled after the state’s Gaming Control Board, launched in July 2020, and Martin said she and many of the NDA’s members are happy with how the board has operated over the past year.

“They’ve been great to work with, and it’s excellent having a dedicated regulatory body for the industry,” she said. “It makes it easier to comply. … They’re transparent. … When they were working on regulations, for instance, they [sought] industry guidance so stakeholders were able to provide guidance on what the regulations should look like.”

The CCB recently created a Cannabis Advisory Commission, Martin added, which is made up of industry stakeholders, legislators and government agencies who will ultimately make recommendations to the full board.

“There’s a subcommittee on social equity, one on public health, one on public safety, and one on the cannabis industry and market stability,” Martin said. “Each of those subcommittees will research, analyze and make recommendations to the board. … They just met for the first time this week, so we’re really excited to see where that goes.”

Planning for the Future

During the 2021 legislative session, the Nevada Legislature passed a bill to create a new consumption lounge license, the first new license type since adult-use was legalized. The CCB is currently going through the rulemaking process to draft regulations for these new businesses, and Martin anticipates seeing the first operational lounges in the early part of 2022.

Existing dispensaries can each apply for a license to open one lounge, which must be attached or adjacent to their existing facilities.

“Some of our [dispensary members] … are located near the tourist corridor, [and they] are very excited about the opportunity to have lounges to give tourists, for example, a place to try cannabis products legally,” Martin said.

The Source will pursue a license to create a consumption lounge, Wiegand said, adding, “There’s a whole world of experiences that can be created with the product, and I’m really excited to see what comes out of that and very proud of the fact that Nevada took a stand and will be part of something that will be the next evolution of the industry.”

The NDA will continue to evolve with the industry, Martin said, and the organization is already planning its priorities for the next legislative session, which will take place in 2023.

One of these priorities will likely be reforming state regulations on packaging and labeling, Martin said.

“A lot of our regulations and statutes related to packaging and labeling have evolved, and it’s become … somewhat duplicative, a little bit onerous, and we are taking cues from a couple of other states that have gone back and reformed their packaging and labeling regulations,” she said. “How can we streamline … our packaging and labeling requirements to be more consumer-friendly [and] provide the information, but perhaps in a different way?”

The Source’s upcoming goals focus on running a more efficient dispensary, Wiegand said.

“One area we’ve focused on pretty heavily over the past few years is understanding the customer—understanding buying behavior, understanding product and proper merchandise planning and allocation,” he said. “How do we get the right products in the right volumes at the right times, so we’re not overstocked in some SKUs and understocked in others? How do we make sure that the product our customer is looking for is kept in stock?”

Customer preferences are starting to evolve, he added, and consumers are starting to purchase products based on terpenes rather than potency.

“We spent a lot of time and a lot of effort educating customers about the entourage effect and terpenes and really understanding that there’s a lot more to the experience of the product beyond just the THC percentage,” Wiegand said. “In conversations with customers, there’s definitely a different level of knowledge and customers are seeking out terpenes they know and like and that bring them the benefits and the effects that they’re looking for.”

The Source has continued to scale to meet consumer demand and has converted to vertical cultivation to double its square footage without expanding the size of the building. 

“Then, on top of that, we’ve bought a new distribution center, where we’re going to co-locate our production facility,” Wiegand said, adding that this will support The Source’s dispensaries as well as other retailers that buy The Source’s product wholesale.

“We scale up the business, we plateau and stabilize, and then we develop new products, … we see the demand go up, and we have to retool the business again,” Wiegand said. “I joke about the fact that it has been a sprint from day one, even going back to medical. I don’t know that we’ve had a year of stability. It’s always been something changing, something new, and that’s part of what I love about the business—it’s dynamic and exciting.”

ASTM Introduces Retail Cybersecurity Standard

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ASTM International, the international standards development organization, has proposed a cannabis standard for establishing retail cybersecurity protocols. Their D37 cannabis committee is currently working on the development of the standard.

The standard is designed to establish best practices for protecting critical databases in dispensaries, like inventory data, customer and patient information. The guide, developed by subcommittee D37.05, addresses “the company or government organizational need to mitigate the likelihood of cyberattacks and reduce the extent of potential cyberattacks, which can leave sensitive personal data, corporate information, and critical infrastructure vulnerable to attackers,” reads the scope of the project.

Technical Lead for the subcommittee and president of ezGreen Compliance, Michael Coner, says they hope to provide SOPs for retail operations to protect business data while staying compliant. “Cybersecurity is among the most prevailing issues concerning the cannabis industry as well as the global cannabis economy,” says Coner. “Establishing strong cybersecurity protocols for dispensary retail owners will help ensure the protection of data to maintain the integrity of cannabis consumers’ personal information.”

The ASTM committee is currently inviting stakeholders such as retailers and regulators to help with things like “identifying new data security issues that arise while operating active retail dispensary businesses.”

Nevada Celebrates Four Years of Adult-Use Cannabis Sales

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July 1, 2021, marked four years since Nevada launched its first adult-use cannabis sales, and the market has certainly seen its fair share of rapid growth and regulatory changes during that time, not to mention the unprecedented COVID-19 pandemic.

From July 2017 to June 2018, the state saw $529,851,245 in taxable medical and adult-use cannabis sales, a figure that has steadily increased to $719,216,651 during the current fiscal year, which includes sales data from July 2020 to March 2021, according to the Nevada Department of Taxation.

Flexibility is the name of the game for cannabis operators looking to cash in on this rapidly growing market, according to Layke Martin, executive director of the Nevada Dispensary Association (NDA).

“I think this industry is ever-changing, and our owners know that and are prepared for that,” Martin told Cannabis Business Times and Cannabis Dispensary. “They’re flexible and ready to pivot.”

RELATED: A Snapshot of Nevada’s Cannabis Retail Market: Q&A with the Nevada Dispensary Association

The NDA launched roughly five years ago as an advocacy and trade association for the retail segment of the market but has recently expanded to include cannabis cultivators and distributors.

Nevada currently has 86 operational dispensaries, and the industry employs approximately 10,000 people, Martin said.

Reflecting on Lessons Learned

The Source pivoted to the adult-use market quickly, launching its first recreational sales at its Sahara location on July 1, 2017. The company’s Henderson store began serving the adult-use marketplace much later, in October 2017, due to delays in the rollout of local regulations, according to Brandon Wiegand, The Source’s chief commercial officer.

“We saw an immediate impact,” Wiegand said. “Going from medical to recreational, it was about a five-times increase in business. Then, it’s ebbed and flowed.”

When the first adult-use sales launched in 2017, The Source had roughly 50 employees, a number that has since grown to more than 260. The company also won three new retail licenses when the state opened up another licensing round in 2018, and has opened three new stores in Las Vegas, North Las Vegas and Reno.

In the past four years, The Source has adjusted its operations to accommodate the sharp increase in customers, and part of these adjustments include more robust consumer education.

“With recreational, there’s a much bigger knowledge gap,” Wiegand said. “Customers are coming in that either haven’t consumed cannabis in many, many years or may have never consumed cannabis, and so we focus on education, knowledge, [and] creating an environment that helps awareness and understanding of the product, the different methods of consumption [and] the effects of that consumption. … Our big focus as a team is, how do we dispel the myths and stereotypes around the product, and how do we help people find the experience they’re looking for?”

Wiegand said The Source has a “pretty liberal sample policy,” where dispensary employees are encouraged to try the products to help inform their discussions with customers.

“We encourage them to try and experience the product themselves so that they can talk about it from a first-person point of view,” he said.

The COVID-19 pandemic sparked a new set of challenges for the business, Wiegand said, and The Source had to quickly navigate the e-commerce space to offer curbside pickup and delivery services.

“E-commerce has probably been one of the most significant changes in the business over the last four years—getting our product online [and] developing a platform and experience and a way for our customers to shop,” he said. “That’s an area that we’ve continued to focus on and retool. I think we’re still working today on how to make that process cleaner, leaner [and] more efficient. We’ve seen a huge shift in customers going after e-commerce. Coming out of COVID, there are a lot of people who have changed the way they shop. They’re looking for convenience.”

Clearing Regulatory Hurdles

There are some onerous regulations that burden all cannabis operators, such as limited access to banking services and tax code 280E, and then there are state-specific regulatory hurdles that businesses face in each legal market. In Nevada, the most significant regulatory hurdle when adult-use sales launched in 2017 might have been language in the law that required businesses to have distribution licenses in order to deliver product.

“That had not been figured out when we launched recreational sales, and our biggest challenge going into rec sales was storing product,” Wiegand said. “We didn’t know when we were going to be able to get deliveries for recreational product. The state and the regulatory agency—at the time it was the Department of Taxation—had allowed us to one time turn our inventory. So, whatever we had July 1 at 12:01 a.m., we were allowed to use that as recreational inventory. So, all of us, all of the dispensaries in the state, stockpiled, not knowing when we were going to be able to get deliveries.”

Another significant regulatory change was creation of the Cannabis Compliance Board (CCB) to oversee the industry, which had previously been regulated by the Nevada Department of Taxation.

The CCB, modeled after the state’s Gaming Control Board, launched in July 2020, and Martin said she and many of the NDA’s members are happy with how the board has operated over the past year.

“They’ve been great to work with, and it’s excellent having a dedicated regulatory body for the industry,” she said. “It makes it easier to comply. … They’re transparent. … When they were working on regulations, for instance, they [sought] industry guidance so stakeholders were able to provide guidance on what the regulations should look like.”

The CCB recently created a Cannabis Advisory Commission, Martin added, which is made up of industry stakeholders, legislators and government agencies who will ultimately make recommendations to the full board.

“There’s a subcommittee on social equity, one on public health, one on public safety, and one on the cannabis industry and market stability,” Martin said. “Each of those subcommittees will research, analyze and make recommendations to the board. … They just met for the first time this week, so we’re really excited to see where that goes.”

Planning for the Future

During the 2021 legislative session, the Nevada Legislature passed a bill to create a new consumption lounge license, the first new license type since adult-use was legalized. The CCB is currently going through the rulemaking process to draft regulations for these new businesses, and Martin anticipates seeing the first operational lounges in the early part of 2022.

Existing dispensaries can each apply for a license to open one lounge, which must be attached or adjacent to their existing facilities.

“Some of our [dispensary members] … are located near the tourist corridor, [and they] are very excited about the opportunity to have lounges to give tourists, for example, a place to try cannabis products legally,” Martin said.

The Source will pursue a license to create a consumption lounge, Wiegand said, adding, “There’s a whole world of experiences that can be created with the product, and I’m really excited to see what comes out of that and very proud of the fact that Nevada took a stand and will be part of something that will be the next evolution of the industry.”

The NDA will continue to evolve with the industry, Martin said, and the organization is already planning its priorities for the next legislative session, which will take place in 2023.

One of these priorities will likely be reforming state regulations on packaging and labeling, Martin said.

“A lot of our regulations and statutes related to packaging and labeling have evolved, and it’s become … somewhat duplicative, a little bit onerous, and we are taking cues from a couple of other states that have gone back and reformed their packaging and labeling regulations,” she said. “How can we streamline … our packaging and labeling requirements to be more consumer-friendly [and] provide the information, but perhaps in a different way?”

The Source’s upcoming goals focus on running a more efficient dispensary, Wiegand said.

“One area we’ve focused on pretty heavily over the past few years is understanding the customer—understanding buying behavior, understanding product and proper merchandise planning and allocation,” he said. “How do we get the right products in the right volumes at the right times, so we’re not overstocked in some SKUs and understocked in others? How do we make sure that the product our customer is looking for is kept in stock?”

Customer preferences are starting to evolve, he added, and consumers are starting to purchase products based on terpenes rather than potency.

“We spent a lot of time and a lot of effort educating customers about the entourage effect and terpenes and really understanding that there’s a lot more to the experience of the product beyond just the THC percentage,” Wiegand said. “In conversations with customers, there’s definitely a different level of knowledge and customers are seeking out terpenes they know and like and that bring them the benefits and the effects that they’re looking for.”

The Source has continued to scale to meet consumer demand and has converted to vertical cultivation to double its square footage without expanding the size of the building. 

“Then, on top of that, we’ve bought a new distribution center, where we’re going to co-locate our production facility,” Wiegand said, adding that this will support The Source’s dispensaries as well as other retailers that buy The Source’s product wholesale.

“We scale up the business, we plateau and stabilize, and then we develop new products, … we see the demand go up, and we have to retool the business again,” Wiegand said. “I joke about the fact that it has been a sprint from day one, even going back to medical. I don’t know that we’ve had a year of stability. It’s always been something changing, something new, and that’s part of what I love about the business—it’s dynamic and exciting.”

Oregon Liquor Control Commission Approves Temporary Rules to Begin Hemp Field Inspections

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Market demand across the cannabis industry has generally followed a straightforward path: After legalization, consumers look for flower, then edibles and vape products, followed by more focused interest in concentrates. It’s that last and most varied segment that’s seeing tremendous growth recently.

Within the concentrates category, solventless concentrates are growing rapidly.

“What we’re seeing with solventless is that as markets mature, their consumer bases are starting to look for higher quality products and different product experiences,” PurePressure Director of Marketing Eric Vlosky says. “A lot of people end up landing on solventless as they get more educated about what goes into their cannabis. You’re seeing it happen very quickly in mature markets, and then other markets are following suit.”

Live rosin batter produced at Kush Masters in Boulder, CO.

Last year in California, rosin concentrates accounted for $24.8 million in sales, according to BDS Analytics. That was up from $12.5 million in 2019. And sales are not slowing down.

Based on January-to-January growth, from 2020 to 2021, BDS Analytics predicts that 2021 solventless sales could hit $62.5 million in California. 

In Oregon, another more mature market, it’s the same story. Solventless sales raced skyward from $7.4 million in 2019 to $17.8 million in 2020 to an anticipated $30.6 million in 2021.

To some degree, the story of cannabis in the U.S. is still one of mature markets signaling consumer trends that will follow in other parts of the country. As California and Colorado go, so goes the rest of the U.S., often enough. That’s the case when it comes to genetics, new products (THC-infused beverages, let’s say) and broader market categories like solventless concentrates. The momentum is here.

What solventless offers is the clearest expression of the plant’s original chemistry in concentrated form, due to that fact there is no intermediary chemical vehicle through which the extraction is happening. As a market description on dispensary shelves, it’s an expanding niche within the broader game of cannabis consumer demand, and budtender education is helping the trend along. It’s getting less common to walk into a dispensary and not get into a conversation about the ins and outs of solventless.

As such, these products may be more expensive, but the end result is a flavor profile and ensemble effect that caters to sophisticated tastes, such as you will find in maturing markets. 

This is the area of the cannabis space where you’ll find first adopters, influencers, connoisseurs. 

 

Solventless hash oil dripping into a jar off of the Longs Peak rosin press.

For operators who might be interested in catching this wave and starting to embark on a solventless plan, it starts with the brand. What do you want to do with solventless? What would you like to see on dispensary shelves six or eight months down the line? 

And do your answers to those questions fit into the overall story that your brand has been carefully crafting?

“Before you buy anything or even identify where in your lab you’re going to create space, you want to have an idea of what SKUs and what products mesh well with your brand and your market,” Vlosky says. “Once you have an idea of what products you think the market will want from your brand and what fits, then it’s planning in your lab how much square footage you have and how much processing you think that your lab can undertake in a week, a month, a year, and having a multi-phase roll-out.”

This is an important point. In most areas of the cannabis space, you’re not simply diving into the deep end on day one (although it might feel like you are). Scale is a vital concept in this industry, and that’s no different when you’re considering solventless extraction. As part of your brand, it will take time and observation to learn what works best. The on-ramp in those early days of your solventless experiment will be only a scaled-down preview of what your phase-two and phase-three plans might look like.

Early on, make sure that you have the right team in place

“Have someone on the team—whether it’s the owner or the lab manager or one of the extraction techs—who’s actually passionate about solventless, which is pretty common, actually, because a lot of core industry people are really passionate about solventless,” Vlosky says. “That really helps, because then they’re going to help make good decisions to make sure that you’re emphasizing quality and making the right moves to make a high-quality product.”

Then there are some of the more immediate issues to tie up. Identify the space you’ll use for this work and for the freezers you’ll need to store fresh-frozen plant material. Source premium genetics specifically for this solventless use. Use RO water and RO ice (not tap) for your hash washes. “Having that clean RO water makes a huge difference in the end result in quality,” Vlosky says. 

If all goes well, how will you expand operations in your lab? Who will you need to hire? How will you pivot to meet evolving consumer preferences among the SKUs you’re offering? 

Part of those questions involves the material pipeline that you’ve set up for the first phase of your foray into solventless. 

If your business is vertically integrated, then you’ve got a known source for plant genetics that could work well in a solventless extraction environment (resinous trichomes, rich terpene profiles). You can tailor your cultivation vertical toward this new solventless venture.

If you’re not vertically integrated, what sort of input source have you lined up? Early on in conversations with growers, make sure to clearly explain that you’re interested in material for solventless extraction. This helps the transaction and ensures that the grower identifies plant genetics most suitable to your end goal.

The key is to keep that material pipeline consistent as you grow your solventless operation, and to cross-check it against your longer-term goals.  

Which SKUs Should You Pursue with Solventless Extraction?

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The New Mexico cannabis industry is watching closely as the state’s new regulator works through its rulemaking process to have regulations in place for adult-use sales to launch April 1, 2022.

The Cannabis Regulation Act, which cleared the New Mexico Legislature and received Gov. Michelle Lujan Grisham’s signature this past spring, became effective June 29 and allows adults 21 and older to possess 2 ounces of cannabis flower, 16 grams of cannabis extract and 800 milligrams of edible cannabis. Adults may also grow up to six plants at home for personal use, with a maximum of 12 plants per household, and cannabis odor and cannabis containers can no longer be used as probable cause for law enforcement to stop, detain or search a person.

The law also includes additional social justice and social equity provisions, such as automatic expungement and specific language that instructs the state to develop a plan to encourage and promote equity in the industry.

“There’s language in there to make sure that people who were formerly incarcerated and who had charges for cannabis-related offenses are able to participate in the new marketplace,” said Emily Kaltenbach, senior director of the Drug Policy Alliance. “We don’t want those individuals to be left out.”

New Mexico’s adult-use cannabis law also created the Cannabis Control Division to regulate and oversee the state’s medical and adult-use cannabis markets. The division published its first round of rules on June 29 and kicked off a public comment period to receive feedback on the proposed regulations. Regulators are currently revising the rules based on the comments received and will hold another hearing Aug. 6.

“The most important thing we’ve commented on was making sure that the equity and justice piece is thought about before the rules are finalized because we don’t want that to be left behind,” Kaltenbach said.

The state will ultimately license adult-use cannabis producers, manufacturers, testing labs and retailers, as well as research labs and vertically integrated cannabis operators. New Mexico will also issue microbusiness licenses to smaller cultivators and vertically integrated operations.

“These micros are essentially a way for these smaller operators to dip their toes in a new industry without having to pay high fees,” said Marissa Novel, chief marketing officer for vertically integrated medical cannabis producer Ultra Health. “[It’s] just a way to get those craft growers into the market.”

The cannabis producer microbusiness license allows cultivators to grow a maximum of 200 mature plants for a $1,000 annual licensing fee, while the integrated cannabis microbusiness license allows vertically integrated operators to grow 200 plants, as well as manufacture and sell cannabis products in a single location, for a $2,500 annual licensing fee.

The Drug Policy Alliance has submitted feedback to the Cannabis Control Division to support provisional licensing, Kaltenbach said, so that entrepreneurs will know whether they will be licensed before leasing a space or investing in other areas of their business.

The Cannabis Regulation Act requires the state to begin accepting applications for cannabis producers by Sept. 1, and the first set of rules promulgated by the Cannabis Control Division focuses on licensing these cultivators.

Water rights and water use will likely be a component of the application process, according to Justin Brandt, partner of Bianchi & Brandt.

“One of the application requirements for the producer license is going to be legal proof of water rights,” he said. “I don’t want to say it’s unusual, but it’s not something we see often at the application stage.”

Although there is a tight turnaround between the Aug. 6 hearing on the revised regulations and the Sept. 1 deadline to release the applications for producers, industry stakeholders believe the Cannabis Control Division can meet the timeline.

“I think everything indicates that the department is going to get all of this done by Sept. 1, and I think they’re pretty close,” Brandt said.

Local jurisdictions are also working to draft rules for the adult-use cannabis industry, Brandt added. While local communities cannot outright ban cannabis within their borders, they can draft their own policies and zoning requirements for cannabis businesses.

“Not only does the Cannabis Control Division have to promulgate their final rules for these licenses, [but] applicants have to look at the local level to see where they’re at there,” he said.

Navigating Growing Pains

Plant count limitations have been a hot topic in New Mexico’s medical cannabis industry for quite some time, with medical operators advocating for an increase in the number of plants they can grow, or removing the cap altogether.

Under the current regulations, medical cannabis operators can grow a maximum of 1,750 total plants, and Novel said there is an active lawsuit in New Mexico’s 1st District Court about whether this rule is valid based on previous litigation.

Under the most recent set of rules published by the Cannabis Control Division, the maximum plant count would be raised to 10,000 mature plants per producer, but Novel said supply problems could persist even if these regulations become final.

“Even though they proposed that 10,000 mature cap [on plants], those rules won’t be effective until later this year, maybe even this December,” she said. “That’s due to the licensing requirements—the division has 90 days to process licenses after that Sept. 1 deadline. December is a long way away. While the proposed rules are a step in the right direction, they really don’t impact what’s happening now, today, in the medical market.”

With New Mexico’s medical cannabis program continuing to enroll new patients, Novel is concerned about an impending supply shortage in both the existing medical and forthcoming adult-use markets.

“Right now, when we have adult-use sales looming in the spring—we know they’re coming—there’s not one more additional cannabis plant in production to meet demand for even one more patient in the program or an adult-use consumer,” she said. “As you may know, it takes four months for cannabis to fully mature, be harvested and reach the shelf. And even right now [in] our medical cannabis program, we’re enrolling thousands of people each month. That number just keeps growing. And the outdoor cultivation season is quickly coming to an end. So, we have all these moving parts, and still, there’s no additional production. So, it makes us nervous, and it should make the regulator nervous.”

Ultra Health is advocating for the state to issue an emergency rule that would raise or eliminate the plant count while the Cannabis Control Division finalizes its regulations.

“That rule could be active immediately for 180 days, and it could allow us to put more plants in the ground today rather than waiting until December to license existing and future operators,” Novel said. “We advocate for removing the 1,750 cap entirely because we know that the regulator wants to go to 10,000 mature plants, so why wait until December? We have 120,000 medical patients in our program that need their medicine to live their lives. It continues to be our biggest struggle in New Mexico, having adequate supply to meet demand. Unless there’s movement quickly, it’s going to continue to be an issue, even when [adult-use] sales begin.”

Serving a Broader Customer Base

Ultra Health plans to seek an adult-use license when the application becomes available later this year, and Novel said the company is already preparing for the application process.

The company has been monitoring the Cannabis Control Division’s proposed rules and has provided feedback during the public comment period. To prepare its comments, Ultra Health worked with MPG Consulting, the firm that works with the Colorado Department of Revenue to produce demand reports for the state, to commission a demand report for New Mexico.

“We worked with MPG to create this very robust demand report, and we learned that this industry could be as large as $786 million for both medical and adult-use by 2026,” Novel said. “That was really exciting insight because … now we have a roadmap that says if we have adequate plans, if we have a robust industry right out the door, then we can reduce and eliminate the illicit market and create an $800 million industry for the state of New Mexico.”

With this data in hand, Novel said Ultra Health can take an active role in the rulemaking process by providing informed feedback on the proposed regulations to hopefully help guide what the application and, ultimately, the industry will look like.

Ultra Health has also launched several expansion projects to prepare for legalization, deploying about $20 million to expand its retail, production, manufacturing and distribution operations across four New Mexico counties. This includes a newly contracted, 225,000-square-foot building in the southern part of the state that will be used for production, R&D and warehousing.

“It’s equipped with temperature-controlled processing rooms, [as well as] designated warehouses for processing materials and finished goods,” Novel said. “The ceiling heights are about 25 feet with water systems, so it’s basically a large-scale operator’s dream building. … It did not come cheap, but we knew that the forthcoming activity levels would be bigger than we could really imagine, so we chose to dream big.”

Ultra Health has also invested in additional outdoor farmland in Tularosa, as well as a 50,000-square-foot distribution space that will act as a distribution hub to transport cannabis from its Bernalillo campus to Southern and Southeastern New Mexico.

The company is also expanding its water rights; in 2018, Ultra Health purchased 200 acres of land and 1,000-acre feet of water to feed the plants, and earlier this year, the company added another 150 acres of farmland and 750-acre feet of water.

“We knew that water would be a major issue during the onset of legalization and afterward,” Novel said. “There is unfortunately a drought in New Mexico, and we took the initiative years ago to be that responsible operator, where we’re going to go secure water rights from the Tularosa basin that has more water than that area near Albuquerque and Bernalillo where a lot of people live. We knew this was going to be an issue, and we’ve essentially been playing the long game. And it’s really starting to pay off.”

Ultra Health currently operates 25 retail locations, with 15 more in the pipeline. Novel said the company plans to have 50 operational dispensaries by the fall of 2022.

“It’s really about furthering the convenience aspect of our business model,” she said. “We want to make sure that New Mexicans and those spending time in New Mexico have ample convenient options to choose from when they want to shop at a legal, regulated source. That’s a huge part of getting the illicit market into the regulated market.”

“We’re also excited about revitalizing some of the smaller, rural New Mexico areas,” Novel added. “We want to offer individuals good-paying, stable jobs that can turn into lifetime careers. A lot of these small towns, they don’t have new businesses coming to town, so the job market suffers. But if you allow those cannabis operators to come in and give those good wages and create that activity that the local jurisdictions can then tax, a rising tide lifts all boats. It’s an opportunity for those smaller communities to be revitalized and have that business opportunities that they’ve been looking for.”

Next Steps for Operators Interested in the Fastest-Growing Concentrates Category

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The New Mexico cannabis industry is watching closely as the state’s new regulator works through its rulemaking process to have regulations in place for adult-use sales to launch April 1, 2022.

The Cannabis Regulation Act, which cleared the New Mexico Legislature and received Gov. Michelle Lujan Grisham’s signature this past spring, became effective June 29 and allows adults 21 and older to possess 2 ounces of cannabis flower, 16 grams of cannabis extract and 800 milligrams of edible cannabis. Adults may also grow up to six plants at home for personal use, with a maximum of 12 plants per household, and cannabis odor and cannabis containers can no longer be used as probable cause for law enforcement to stop, detain or search a person.

The law also includes additional social justice and social equity provisions, such as automatic expungement and specific language that instructs the state to develop a plan to encourage and promote equity in the industry.

“There’s language in there to make sure that people who were formerly incarcerated and who had charges for cannabis-related offenses are able to participate in the new marketplace,” said Emily Kaltenbach, senior director of the Drug Policy Alliance. “We don’t want those individuals to be left out.”

New Mexico’s adult-use cannabis law also created the Cannabis Control Division to regulate and oversee the state’s medical and adult-use cannabis markets. The division published its first round of rules on June 29 and kicked off a public comment period to receive feedback on the proposed regulations. Regulators are currently revising the rules based on the comments received and will hold another hearing Aug. 6.

“The most important thing we’ve commented on was making sure that the equity and justice piece is thought about before the rules are finalized because we don’t want that to be left behind,” Kaltenbach said.

The state will ultimately license adult-use cannabis producers, manufacturers, testing labs and retailers, as well as research labs and vertically integrated cannabis operators. New Mexico will also issue microbusiness licenses to smaller cultivators and vertically integrated operations.

“These micros are essentially a way for these smaller operators to dip their toes in a new industry without having to pay high fees,” said Marissa Novel, chief marketing officer for vertically integrated medical cannabis producer Ultra Health. “[It’s] just a way to get those craft growers into the market.”

The cannabis producer microbusiness license allows cultivators to grow a maximum of 200 mature plants for a $1,000 annual licensing fee, while the integrated cannabis microbusiness license allows vertically integrated operators to grow 200 plants, as well as manufacture and sell cannabis products in a single location, for a $2,500 annual licensing fee.

The Drug Policy Alliance has submitted feedback to the Cannabis Control Division to support provisional licensing, Kaltenbach said, so that entrepreneurs will know whether they will be licensed before leasing a space or investing in other areas of their business.

The Cannabis Regulation Act requires the state to begin accepting applications for cannabis producers by Sept. 1, and the first set of rules promulgated by the Cannabis Control Division focuses on licensing these cultivators.

Water rights and water use will likely be a component of the application process, according to Justin Brandt, partner of Bianchi & Brandt.

“One of the application requirements for the producer license is going to be legal proof of water rights,” he said. “I don’t want to say it’s unusual, but it’s not something we see often at the application stage.”

Although there is a tight turnaround between the Aug. 6 hearing on the revised regulations and the Sept. 1 deadline to release the applications for producers, industry stakeholders believe the Cannabis Control Division can meet the timeline.

“I think everything indicates that the department is going to get all of this done by Sept. 1, and I think they’re pretty close,” Brandt said.

Local jurisdictions are also working to draft rules for the adult-use cannabis industry, Brandt added. While local communities cannot outright ban cannabis within their borders, they can draft their own policies and zoning requirements for cannabis businesses.

“Not only does the Cannabis Control Division have to promulgate their final rules for these licenses, [but] applicants have to look at the local level to see where they’re at there,” he said.

Navigating Growing Pains

Plant count limitations have been a hot topic in New Mexico’s medical cannabis industry for quite some time, with medical operators advocating for an increase in the number of plants they can grow, or removing the cap altogether.

Under the current regulations, medical cannabis operators can grow a maximum of 1,750 total plants, and Novel said there is an active lawsuit in New Mexico’s 1st District Court about whether this rule is valid based on previous litigation.

Under the most recent set of rules published by the Cannabis Control Division, the maximum plant count would be raised to 10,000 mature plants per producer, but Novel said supply problems could persist even if these regulations become final.

“Even though they proposed that 10,000 mature cap [on plants], those rules won’t be effective until later this year, maybe even this December,” she said. “That’s due to the licensing requirements—the division has 90 days to process licenses after that Sept. 1 deadline. December is a long way away. While the proposed rules are a step in the right direction, they really don’t impact what’s happening now, today, in the medical market.”

With New Mexico’s medical cannabis program continuing to enroll new patients, Novel is concerned about an impending supply shortage in both the existing medical and forthcoming adult-use markets.

“Right now, when we have adult-use sales looming in the spring—we know they’re coming—there’s not one more additional cannabis plant in production to meet demand for even one more patient in the program or an adult-use consumer,” she said. “As you may know, it takes four months for cannabis to fully mature, be harvested and reach the shelf. And even right now [in] our medical cannabis program, we’re enrolling thousands of people each month. That number just keeps growing. And the outdoor cultivation season is quickly coming to an end. So, we have all these moving parts, and still, there’s no additional production. So, it makes us nervous, and it should make the regulator nervous.”

Ultra Health is advocating for the state to issue an emergency rule that would raise or eliminate the plant count while the Cannabis Control Division finalizes its regulations.

“That rule could be active immediately for 180 days, and it could allow us to put more plants in the ground today rather than waiting until December to license existing and future operators,” Novel said. “We advocate for removing the 1,750 cap entirely because we know that the regulator wants to go to 10,000 mature plants, so why wait until December? We have 120,000 medical patients in our program that need their medicine to live their lives. It continues to be our biggest struggle in New Mexico, having adequate supply to meet demand. Unless there’s movement quickly, it’s going to continue to be an issue, even when [adult-use] sales begin.”

Serving a Broader Customer Base

Ultra Health plans to seek an adult-use license when the application becomes available later this year, and Novel said the company is already preparing for the application process.

The company has been monitoring the Cannabis Control Division’s proposed rules and has provided feedback during the public comment period. To prepare its comments, Ultra Health worked with MPG Consulting, the firm that works with the Colorado Department of Revenue to produce demand reports for the state, to commission a demand report for New Mexico.

“We worked with MPG to create this very robust demand report, and we learned that this industry could be as large as $786 million for both medical and adult-use by 2026,” Novel said. “That was really exciting insight because … now we have a roadmap that says if we have adequate plans, if we have a robust industry right out the door, then we can reduce and eliminate the illicit market and create an $800 million industry for the state of New Mexico.”

With this data in hand, Novel said Ultra Health can take an active role in the rulemaking process by providing informed feedback on the proposed regulations to hopefully help guide what the application and, ultimately, the industry will look like.

Ultra Health has also launched several expansion projects to prepare for legalization, deploying about $20 million to expand its retail, production, manufacturing and distribution operations across four New Mexico counties. This includes a newly contracted, 225,000-square-foot building in the southern part of the state that will be used for production, R&D and warehousing.

“It’s equipped with temperature-controlled processing rooms, [as well as] designated warehouses for processing materials and finished goods,” Novel said. “The ceiling heights are about 25 feet with water systems, so it’s basically a large-scale operator’s dream building. … It did not come cheap, but we knew that the forthcoming activity levels would be bigger than we could really imagine, so we chose to dream big.”

Ultra Health has also invested in additional outdoor farmland in Tularosa, as well as a 50,000-square-foot distribution space that will act as a distribution hub to transport cannabis from its Bernalillo campus to Southern and Southeastern New Mexico.

The company is also expanding its water rights; in 2018, Ultra Health purchased 200 acres of land and 1,000-acre feet of water to feed the plants, and earlier this year, the company added another 150 acres of farmland and 750-acre feet of water.

“We knew that water would be a major issue during the onset of legalization and afterward,” Novel said. “There is unfortunately a drought in New Mexico, and we took the initiative years ago to be that responsible operator, where we’re going to go secure water rights from the Tularosa basin that has more water than that area near Albuquerque and Bernalillo where a lot of people live. We knew this was going to be an issue, and we’ve essentially been playing the long game. And it’s really starting to pay off.”

Ultra Health currently operates 25 retail locations, with 15 more in the pipeline. Novel said the company plans to have 50 operational dispensaries by the fall of 2022.

“It’s really about furthering the convenience aspect of our business model,” she said. “We want to make sure that New Mexicans and those spending time in New Mexico have ample convenient options to choose from when they want to shop at a legal, regulated source. That’s a huge part of getting the illicit market into the regulated market.”

“We’re also excited about revitalizing some of the smaller, rural New Mexico areas,” Novel added. “We want to offer individuals good-paying, stable jobs that can turn into lifetime careers. A lot of these small towns, they don’t have new businesses coming to town, so the job market suffers. But if you allow those cannabis operators to come in and give those good wages and create that activity that the local jurisdictions can then tax, a rising tide lifts all boats. It’s an opportunity for those smaller communities to be revitalized and have that business opportunities that they’ve been looking for.”